Complaint Charges Company Paid Four Generic Drug Makers in Order to
Protect Monopoly Profits on its Leading Product

WASHINGTON, Feb. 13, 2008-The Federal Trade Commission today
filed a complaint in federal district court against Cephalon, Inc.,
a pharmaceutical company based in Frazer, Pennsylvania, for a
course of anticompetitive conduct that is preventing competition to
its branded drug Provigil. The conduct includes paying four firms
to refrain from selling generic versions of Provigil until 2012.
Cephalon’s anticompetitive scheme, the FTC states, denies
patients access to lower-cost, generic versions of Provigil and
forces consumers and other purchasers to pay hundreds of millions
of dollars a year more for Provigil.

According to the Commission’s complaint, filed in the U.S.
District Court for the District of Columbia, Cephalon entered into
agreements with four generic drug manufacturers that each planned
to sell a generic version of Provigil. Each of these companies had
challenged the only remaining patent covering Provigil, one
relating to the size of particles used in the product. The
complaint charges that Cephalon was able to induce each of the
generic companies to abandon its patent challenge and agree to
refrain from selling a generic version of Provigil until 2012 by
agreeing to pay the companies a total amount in excess of $200
million. In so doing, Cephalon achieved a result that assertion of
its patent rights alone could not.

“Today’s suit against Cephalon seeks to undo a
course of anticompetitive conduct that is harming American
consumers by depriving them of access to lower-cost generic
alternatives to an important branded drug,” said FTC Bureau
of Competition Director Jeffrey Schmidt. “Cephalon prevented
competition to Provigil by agreeing to share its future monopoly
profits with generic drug makers poised to enter the market, in
exchange for delayed generic entry. Such conduct is at the core of
what the antitrust laws proscribe.”

The FTC’s Complaint

The court action filed today concerns conduct by Cepahlon to
prevent lower-cost generic competition to one of its key products,
the branded prescription drug Provigil. Provigil is approved to
treat excessive sleepiness in patients with sleep apnea,
narcolepsy, and shift-work sleep disorder. With U.S. sales of
Provigil totaling over $800 million in 2007, and accounting for
more than 40 percent of Cephalon’s total sales, the prospect
of generic competition was a major financial threat to the company,
the complaint states. Generic entry can significantly reduce the
sales of existing branded drugs, and Cephalon knew that it would
profit by keeping lower-cost generic alternatives to Provigil off
the market, the agency contends.

According to the Commission, by late 2005, generic competition
to Provigil appeared imminent. Several years earlier, on the first
day permitted by regulation, four companies – Teva
Pharmaceuticals USA, Inc. (Teva), Ranbaxy Pharmaceuticals, Inc.
(Ranbaxy), Mylan Pharmaceuticals Inc. (Mylan), and Barr
Laboratories, Inc. (Barr) – submitted applications with the
U.S. Food and Drug Administration (FDA) to market their own generic
versions of Provigil. Each company had either designed around, or
challenged the validity of, the only remaining patent on Provigil
– a narrow formulation patent related to the size of the
particles used in the product. Cephalon filed patent litigation
against each of the generic companies. By late 2005, however, the
patent litigation was still pending and Cephalon, the generic
firms, and Wall Street analysts all expected generic Provigil entry
in the near term.

Facing the prospect of billions of dollars in lost revenue,
Cephalon entered into agreements through which it compensated each
of the four generic companies to settle the patent litigation and
agree to forgo generic entry until April 2012, the FTC alleges.
These agreements contained payments to the generic companies
totaling more than $200 million.

No other generic company could compete with branded Provigil,
unless and until all four “first filers” either
relinquished their marketing exclusivity or 180 days after one of
them entered the market. Cephalon therefore was able to erect a
barrier that protected it from other companies that have also
sought approval to sell generic Provigil.

According to the Commission’s complaint, Cephalon’s
conduct in entering into patent-litigation settlements that
included compensation designed to prevent generic competition was,
and continues to be, anticompetitive, an abuse of monopoly power,
and unlawful under Section 5(a) of the FTC Act.

The FTC contends that Cephalon’s conduct to thwart generic
entry denied, and continues to deny, consumers access to lower-cost
generic versions of Provigil. It estimates that by entering into
the agreements, Cephalon forced patients and other consumers to pay
hundreds of millions of dollars more a year than they otherwise
would have.

Relief Sought

In filing its complaint, the FTC is seeking a permanent
injunction against Cephalon that would allow generic Provigil entry
before 2012. Further, it is seeking a final court judgment against
Cephalon declaring that its course of conduct, including its
agreements with Teva, Ranbaxy, Mylan, and Barr, violates Section
5(a) of the FTC Act and barring Cephalon from engaging in similar
or related conduct in the future.

The Commission vote approving the complaint was 5-0, with
Commissioner Jon Leibowitz issuing a separate statement concurring
in part and dissenting in part, which can be found as a link to
this press release and on the FTC’s Web site. Commissioner
Leibowitz voted to join the Commission’s decision to bring an
action against Cephalon, noting that pay-for-delay settlements cost
consumers and the federal government billions of dollars in excess
charges. He wrote that, “I also would have named as a
defendant any generic company that took these pay-offs and now
refuses to relinquish their 180-day exclusivity, thus blocking
generic entry into the Provigil market that otherwise could occur
in 2008.”

NOTE: The Commission authorizes the filing of a complaint when
it has “reason to believe” that the law has or is being
violated, and it appears to the Commission that a proceeding is in
the public interest. A complaint is not a finding or ruling that
the defendants have actually violated the law.

Copies of the
Commission’s complaint are available from the FTC’s Web
site at http://www.ftc.gov and also from the
FTC’s Consumer Response Center, Room 130, 600 Pennsylvania
Avenue, N.W., Washington, D.C. 20580. The FTC’s Bureau of
Competition works with the Bureau of Economics to investigate
alleged anticompetitive business practices and, when appropriate,
recommends that the Commission take law enforcement action. To
inform the Bureau about particular business practices, call
202-326-3300, send an e-mail to antitrust@ftc.gov, or write to the
Office of Policy and Coordination, Room 394, Bureau of Competition,
Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington,
DC 20580. To learn more about the Bureau of Competition, read
“Competition Counts” at http://www.ftc.gov/competitioncounts.